Individual Savings Accounts and the Life-Cycle Approach to Social Insurance

Research output: Working paperResearch

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  • Wp-06-03

    Final published version, 546 KB, PDF document

Using Danish data, we find that about three fourths of the taxes levied to finance public transfers actually finance benefits that do not redistribute between people but redistribute income over the life cycle of individual taxpayers. This provides a rationale for financing part of social insurance via mandatory individual savings accounts. An account system that offers liquidity insurance and a lifetime income guarantee helps to alleviate the dilemma between insurance and incentives. To illustrate this, we analyse a specific proposal for reform of the Danish system of social insurance, involving the use of individual accounts. We estimate how the reform would affect the distribution of lifetime incomes, the public budget, and economic efficiency
Original languageEnglish
PublisherEconomic Policy Research Unit. Department of Economics, University of Copenhagen
Number of pages58
Publication statusPublished - 2006

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